Publication: Councils face complex and urgent challenges

This is the first local government overview report published since I became Chair of the Accounts Commission. And the findings are stark and clear, detailing a full year’s impact of Covid-19 on councils.

Our independent review of the finances of Scotland’s councils in 2020/21 found that when Covid-19 funding is excluded, Scottish Government funding to councils had fallen, in real terms, by 4.2 per cent between 2013/14 and 2020/21.  Funding to the rest of the Scottish Government budget has increased in real terms over this period.

Such a reduction in both funding and income would be challenging enough in ‘ordinary’ times, but the impacts of Covid-19 have been both unequal and severely detrimental to many in our communities. And it has hit the hardest those already most disadvantaged.  This convergence of circumstances has presented councils with complex and urgent challenges.

Yet the financial future for our 32 councils is uncertain, exacerbated by continuing single year financial settlements from the Scottish Government. A recent announcement by the Scottish Government, in response to our local government financial overview, that they are finally developing multi-year funding plans is welcome. We look forward to an announcement on this in May.

But the increasing lack of flexibility in council budgets also needs addressing. With more money being ring-fenced to meet Scottish Government priorities, this limits councils in their ability to tailor expenditure to local needs. Instead, councils are constrained to spend increasing amounts of total funding on specific policy areas determined by the government.

Having in place longer term financial certainty is critical. It means councils can put more detailed and robust plans in place, which are determined by local needs, and the needs of individuals, thereby better addressing the shifting demand for services.

The pressures on councils are multi-layered: the impacts of an ageing population and how this requires council services to pivot and shift; overall increasing demand for council services and, managing the accelerating impacts of inflationary and other price pressures. This includes interest rate increases, rises in the cost of labour and raw material for capital projects, alongside the significantly mounting costs of gas and electricity. The longer-term impacts of fuel and food price increases on individuals will be significant. Alongside this, councils must focus on meeting the Scottish Government’s challenging, but important, climate change targets and expanded early learning and childcare provision, as well as the potential future impacts presented to them with a new National Care Service.

The Accounts Commission have been clear for a number of years about the urgent need for councils to change and transform the way services are delivered. But these plans to transform have, understandably, slowed as councils focused on the immediate challenges faced due to the pandemic. Being able to plan for medium and longer term, to have robust forward looking financial plans, will be key to maintaining financial sustainability. But councils must do so by accelerating progress with transformation programmes.

Council elections take place across Scotland in May. Our expectation is that the ongoing work of the Accounts Commission and our joint reporting with the Auditor General for Scotland on key national issues such as social care, are used as a valuable, independent resource.

Our next overview report will be published shortly after May’s local council elections. This report will build on our March overview of local government finances. It will concentrate on assessing the wider performance and challenges facing local government, with a particular focus on the recovery and renewal phases of the pandemic.